Trade Notice No. 11/2011 - Service Tax/SH.
Dated Shillong, the 4th July 2011.
Subject: - Clarification on issues relating to CENVAT Credit Rules 2004–
Regarding.
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Attention of the members of Trade, Industry and all others concerned are
hereby invited to the Board’s Circular No. 943 / 04 / 2011 – CX
issued vide F. No. 354/73/2011-TRU dated 29.04.2011.
The CENVAT Credit Rules 2004 were amended along with the Budget 2011
announcements vide Notification 3/2011-CE (NT) dt 1.3.2011. A few changes
were further effected vide Notification 13/2011-CE (NT) dt 31.3.2011. On a
few issues trade has requested for clarity. Accordingly the following
clarifications are presented issue wise in a tabular format.
S.No. |
Issue |
Clarification |
1 |
Can credit of capital goods be availed of when used in manufacture of
dutiable goods on which benefit under Notification 1/2011- CE is
availed or in provision of a service whose part of value is exempted
on the condition that no credit of inputs and input services is taken? |
As per Rule 6(4) no credit can be availed on capital goods used
exclusively in manufacture of exempted goods or in providing exempted
service. Goods in respect of which the benefit of an exemption under
notification No. 1/2011-CE, dated the 1st March, 2011 is availed are
exempted goods [Rule 2(d)]. Taxable services whose part of value is
exempted on the condition that no credit of inputs and input services,
used for providing such taxable service, shall be taken, are exempted
services [Rule 2(e)]. Hence credit of capital goods used exclusively
in manufacture of such goods or in providing such service is not
allowed. |
2 |
Is the credit of only specified goods and services listed in the
definition of inputs and input services not allowed such as goods used
in a club, outdoor catering etc, or is the list only illustrative? |
The list is only illustrative. The principle is that cenvat credit is
not allowed when any goods and services are used primarily for
personal use or consumption of employees. |
3 |
How is the “no relationship whatsoever with the manufacture of a final
product” to be determined? |
Credit of all goods used in the factory is allowed except in so far as
it is specifically denied. The expression “no relationship whatsoever
with the manufacture of a final product” must be interpreted and
applied strictly and not loosely. The expression does not include any
goods used in or in relation to the manufacture of final products
whether directly or indirectly and whether contained in the final
product or not. Only credit of goods used in the factory but having
absolutely no relationship with the manufacture of final product is
not allowed. Goods such as furniture and stationary used in an office
within the factory are goods used in the factory and are used in
relation to the manufacturing business and hence the credit of same is
allowed. |
4 |
Is the credit of input services used for repair or renovation of
factory or office available? |
Credit of input services used for repair or renovation of factory or
office is allowed. Services used in relation to renovation or repairs
of a factory, premises of provider of output service or an office
relating to such factory or premises, are specifically provided for in
the inclusive part of the definition of input services. |
5 |
Is the credit of Business Auxiliary Service (BAS) on account of sales
commission now disallowed after the deletion of expression “activities
related to business”? |
The definition of input services allows all credit on services used
for clearance of final products upto the place of removal. Moreover
activity of sale promotion is specifically allowed and on many
occasions the remuneration for same is linked to actual sale. Reading
the provisions harmoniously it is clarified that credit is admissible
on the services of sale of dutiable goods on commission basis. |
6 |
Can the credit of input or input services used exclusively in trading,
be availed? |
Trading is an exempted service. Hence the credit of any inputs or
input services used exclusively in trading cannot be availed. |
7 |
What shall be the treatment of credit of input and input services used
in trading before 1.4.2008? |
Trading is an exempted service. Hence credit of any inputs or input
services used exclusively in trading cannot be availed. Credit of
common inputs and input services could be availed subject to
restriction of utilization of credit up to 20% of the total duty
liability as provided for in extant Rules. |
8 |
While calculating the value of trading what principle to follow- FIFO,
LIFO or one to one correlation? |
The method normally followed by the concern for its accounting purpose
as per generally accepted accounting principles should be used. |
9 |
Are the taxes and year end discounts to be included in the sale price
and cost of goods sold while calculating the value of trading? |
Generally accepted accounting principles need to be followed in this
regard. All taxes for which set off or credit is available or are
refundable/ refunded may not be included. Discounts are to be
included. |
10 |
Does the expression “in or in relation” used in Rule 6 override the
definition of “input” under Rule 2(k) for determining the eligibility
of Cenvat credit? |
The definition of “input” is given in Rule 2(k) and Rule 6 only
intends to segregate the credits of inputs used towards dutiable goods
and exempted goods. While applying Rule 6, the expression “in or in
relation” must be read harmoniously with the definition of “inputs”.
|
11 |
Sub-rules 3B and 3C of rule 6 apply to whole entity or independently
in respect of each registration? |
The sub-rules 6(3B) and 6(3C) impose obligation on the entities
providing banking and financial services (in case of a bank and a
financial institution including a non-banking financial company) or
life insurance services or management of investment under ULIP
service. The obligation is applicable independently in respect of each
registration. When such a concern is exclusively rendering any other
service from a registered premises, the said rules do not apply. In
addition to BoFS and life insurance services if any other service is
rendered from the same registered premises, the said rules will apply
and due reversals need to be done. |
12 |
Is the credit available on services received before 1.4.11 on which
credit is not allowed now? e.g. rent-a-cab service |
The credit on such service shall be available if its provision had
been completed before 1.4.2011. |
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Hindi version will follow.
AUTHORITY:
Board’s
Circular No.
943 / 04 / 2011 – CX
Issued vide F.No. 354/73/2011-TRU, Dated 29th April 2011
Disclaimer: Though care has been taken to reproduce the text in its
original form, in case of any inadvertent mistake, the above mentioned
circular may be referred to.
(Anil Kumar Gupta)
Commissioner |